Disruption Response – Short and Mid-Term
TechCXO Disruption Response Resources
Management teams don’t need to “lock up”, no matter the severity of business disruption or the ensuing uncertainty. You can focus your teams around short-, mid- and long-term goals and objectives. Here is some actionable advice and the experts who can assist you.
Start with people.
Leadership, with the assistance of Human Resources, must appreciate how disruptive events like coronavirus can be. Cancelling all travel and scheduled events is startling. An even bigger cultural shock is quickly transitioning employees to remote work. A number of tech companies have moved completely to remote working in just a matter of days. There’s a lot to communicate and adjust to. Where do you begin?
Business Continuity Planning
No matter what stage your business is in – startup, growth stage, mature – or what size your business is, a business continuity program is something that all businesses should have. The most common scenario facing most companies given the coronavirus outbreak is that office facilities become inaccessible due to travel bans or quarantines, or that less people will come into the office due to illness or fear of illness.
These impacts could last for months, and many companies may not be able to provide an alternative location so quickly. Since a pandemic has been declared, multiple sites can be impacted. At minimum, all companies should have team activation procedures with a call tree that gets kicked off by a designated leader when something occurs so that all employees are accounted for and can be reached to continue ongoing business operations.
It is important to assess the different operational areas of your company, and rate them in terms of how critical it is to recover that business function. Financial, operational, legal, and reputational risks should be considered as part of the business impact analysis. Based on these impacts, a recovery time objective needs to be established for each business area, from hours to days depending on the impact assessment. The most critical functions will require more in-depth plans and be addressed as a priority to recover versus other less mission-critical areas.
Back-up procedures and processes will need to be defined for critical and other business applications should they become inaccessible. A communications plan that notifies employees and customers of the situation, what to expect and what needs to be done should be available and ready. An important goal is
to minimize any disruption of service to customers.
Everyone works differently, particularly when working remotely. One of the key things leadership must do is set expectations and establish accountability standards. Ideally, the below tips will help managers replicate the in -office experience at home as closely as possible and as a result keep the team connected and productive and minimize disruption.
Communication and Accountability
- 1. Set boundaries – Make it clear that work from home is still working at full force. To prevent business interruption employees should set boundaries on their standard work time.
- 2. Overcommunicate – Managers should over communicate in the form of 1:1 meetings where goal setting, updates and feedback are given regularly (ideally 2 times per week). Slack is an excellent tool for constant real time updates (similar to an office drop in)
- 3. Results – Employees should clearly show work output, deadlines, goals and objectives
- 4. Virtual Shadowing – For some key tasks, using screen share options in video conferencing helps facilitate understanding
- 5. Time Block – For some, working from home is distracting. It is helpful for employees to work in prescribed time blocks such as those outlined in efficiency tools such as the pomodoro technique.
- 6. Meetings & Preparation – Meetings should run the same as in office with an agenda and video turned on for visual interaction. The chat function can be used so as not to talk over the person presenting.
- 7. Leverage video conferencing – Use of platforms like Google Hangouts and Zoom can closely replicate face-to-face interactions ideally with the camera on.
- 8. Virtual Watercooler – Create a channel in slack called #watercooler or #WFHdays and have people post the types of things they would normally talk about in casual conversation in the office (what’s for lunch, pictures of the weekend, pictures of the dog) this creates a connectivity and a levity that allows the work from home employee to feel connected to their team and is a great stress relief.
- 9. Regular check in- If you are a manager, consider having a virtual coffee with your entire team once a week to check in on how work from home is going and what tools/help you can provide to continue to help the team be productive.
Short-Term: Financial Management
The finance and accounting team can proactively take measures to optimize its cash management systems, work with lenders and even work with sales professionals in terms of the current sales pipeline and the impact pricing and discounts might have in the next upcoming months.
Your CFO can take a number of steps to optimize the proper management of cash.
Reconciling all bank accounts regularly
- Prompt reconciliation of bank accounts will give clues on how to avoid delays in collection.
Creating a realistic revised cash flow forecast and sticking to it
- Forecasting is the first step in attaining a workable cash flow. Moreover, regular reviews of the cash flow statement will highlight a possible shortfall. The statement will show if cash inflow was from an account receivable or other sources such as a credit line and if cash was released to pay for account payables, investments, and operations.
Tracking both current and projected revenues
- Knowing the current and future revenue situation on a frequent basis will help understand the effect on cash flow and whether cash management needs tightening or there is enough cash to invest. Likewise, keeping sight of projected revenues will be the basis for potential resource allocation revisions.
Monitoring and prioritizing cash disbursements and other related business expenses
- An analysis of the cash flow will help prioritize cash disbursements and unnecessary business expenses.
Implementing a timely collection of account receivables
- Three kinds of float cause cash delays. Mail float is a delay in receiving checks through the mail. Processing float is a delay in the company’s internal processing of cash and checks. Bank float is a delay due to the normal clearing process. Delays can also be due to customers deliberately not paying on time. This may become an increasingly large issue due to business disruptions.
During a disruption, operations tend to suffer serious effects due to an overnight drop in demand. The best time to deal with potential disruptions is yesterday; the second-best time is now. The characteristics of a disruption include a sudden drop in demand, excess supply and inventory, idle equipment and other assets, underutilized labor, unabsorbed fixed costs and sharply higher variable costs of operation. This all leads to declining profitability and crisis operations management.
The conditions brought about by industry disruption include excess inventory and falling prices as competitors with underutilized assets chase too few orders with ever lower prices. The battle to maintain share of a shrinking market, while production unit costs are rising, is punishing. Industries tend to be slow to react and over-produce in an uncertain environment which exacerbates excess inventory levels.
Four Key Steps to Improve Operations During Crisis
Four key steps can be followed to improve operations when such a crisis hits:
Recognizing that a business disruption requires a firm break with “business as normal” practice is essential. The faster this happens, the better. The first step is to gather critical resources, both internal and external to the company. Internal resources must include people who can, and will, affect change. External resources could include business partners with relevant experience or a vested interest in the success of the business. A crisis team of no more than six people is optimal.
In order to focus minds and hearts throughout the business, all non-essential activities should be (at least) temporarily suspended. A quick decision on which activities and projects are “mission-critical” must be made. Typically, items such as non-sales travel, projects with payback more than one year, and activities consuming significant resources are delayed or cancelled.
Using the crisis team’s collective knowledge, ideas which drive improved sales and lower costs are quickly collected. For manufacturers the biggest potential cost improvements are in raw materials and manufacturing overhead. These items typically make up most of the cost of goods sold for a manufacturer. Lean manufacturing practices can reduce the production cycle times and inventories needed to support sales.
Key areas to examine include:
• trim fixed costs
• reduce product lines
• lower production complexity
• shorten production cycle times
• reduce finished goods – hold inventory in semi-finished form
• lower raw materials inventories
• mothball / consolidate production
• reduce cost of raw materials
• reduce inventory
• lower raw material costs
• rationalize operations
Next the business must determine priorities and focus scarce resources on critical activities. The team can create simple Pareto diagrams and prioritize customers, raw materials, vendors, profitability, revenue, cash, transaction time, etc. As the business faces resource constraints, it can focus efforts on the 20% of the activities that generate 80% of the cash, profit, order completion, lead time, etc. Project work, for example, will likely be a much lower priority than order completion or activities that generate cash.
An easy exercise is to attach best estimates of effort, costs and benefits to each proposed activity and plot them on a Benefit-Effort 2-axis chart. In such an exercise the project priority list becomes easily visually apparent.
A “B” plan with an “A” execution is sufficient to pull most companies through a crisis. Lean techniques and principles can be used at an accelerated pace to achieve the needed results in a shortened time period. Iterative cycles of Plan-Do-Check-Act or Define-Measure-Analyze-Improve-Control bring the business closer to goals through logical steps.
Constant, clear and continuous communication is essential to an “A” execution. Having daily huddles and being clear on daily and weekly priorities are critical to making steady progress in operations improvement. Improving businesses must be prepared to change priorities, drop activities which have low yield, and support those which are providing a timely return. Simply being clear each day and week as things change will help everyone focus on the right things.
Mid-Term: Supply Chain
During a business disruption the protection, maintenance and improvement of the supply chain is critical for survival. For your manufacturing, supply chain or business processes, there are 8 key steps you can take to prepare:
Step 1: Identify Designates for all key functional areas
Many business processes, especially in your business software, are very similar. Screens and entries in one process often look very much like those in another. Also, connected processes might transfer familiar information. Each key person in your operations must have a designate. One person can be a designate for several others but you have to leverage organizational slack and move people to the areas to keep the business running.
Step 2: Document your critical business processes
All too often, businesses rely on the knowledge and expertise of individual contributors who know what to do but have never written it down. Using process experts (helped by your IT resource to speed creation), create screenshots with instructions or “how to” videos showing how to do key business transactions, allowing someone with more limited knowledge to step in as needed. Using pictures or videos will allow the instructions to be more intuitive and allow much faster completion than writing everything. Remember that transactions may likely take longer to process and you may have to do more monitoring for mistakes.
Step 3: Eliminate bottlenecks (including bureaucratic ones)
A process is only as fast as it’s slowest step. You probably know what these steps are but have not had time to deal with them. With constrained resources, you have to reduce or eliminate or move staffing to these bottlenecks in order to speed the entire process. You know this intuitively at a fast food restaurant; you might have the fastest order taker in history, but if the cash register is broken, or the fries aren’t ready or your drink machine is broken, you are going to be waiting and wasting resources. The worst of these are things like “approvals” or “policies” or “extra quality checks” – step in and make it easy and encourage people to make decisions not wait for approvals.
Step 4: Have regular conversations with your customers
Customers sometimes seem unreasonable, but they are the ones providing the revenue and cash you need right now. They also have a unique view of your business that you often do not have because the information you received internally is “filtered”. As a customer yourself, you know that the sooner you are told about an issue, the better off you are so that you can respond. For example, if a key raw material or supply chain item goes on allocation – and your purchases are limited – you should do a similar allocation with your customers. Share everything you know from your vendor(s) with them real time. They will not like it initially, but in a few weeks as your competitors run out of material, you will be able to fill orders (at a slower rate of course). This will give your customers ample time to communicate with their customers and so on. Another example would be to discuss ways to take cost out of the entire supply chain together through the crisis rather than simply ask for price reductions or better payment terms in a vacuum. Everyone is in the same situation and working together will facilitate the best supply chain possible in a difficult situation.
Step 5: Initiate regular conversations with your suppliers and vendors
Do not wait on your vendors – bring them together via a conference call (or select the 20% of vendors that make up 80% of cost or units) and have a high level strategy discussion with them. Get ideas on best practices and share them with each other. Again, this will not only improve communication, but you can be honest with each other. Each of you will see parts of the supply chain that others cannot. I remember the first time I did this, we found hundreds of thousands of potential dollars in savings across multiple products and vendors through this type of idea sharing. Your vendors will view it as a positive experience and they have a vested interest in helping you be successful.
Step 6: Find substitutes when possible
The pressure to differentiate has often created hundreds of versions of virtually the same product. How many different types of laundry soap or paper plates to we really need? SKU proliferation is rampant in companies. With slow supply chains, having some product is better than no product. Work with your customers on substitutes – you might even provide the “better” product at the regular price simply to avoid stockouts and lost sales. This might be the perfect opportunity to sell that obsolete inventory collecting dust in your warehouse – it will also generate some badly needed cash!
Step 7: Have your IT team expand your teleconferencing capabilities
Many significant supply chain interactions occur face-to-face which may not be possible soon. Companies often have limited tools or rooms for teleconferencing. Work with your IT team to expand bandwidth, upgrade on-line services and train employees on exactly how to use them effectively. They may have used the tools in your office, but have they conferenced in 20 people from 9 countries before? Do they have anyone they can speak to in IT for a problem with a 3am vendor call? Will their phone be adequate to show a maintenance vendor a problem via a telecall so that you can trouble shoot it remotely? Does the phone have good enough resolution? Don’t get overwhelmed but step-by-step provide the right tools to the key employees and help them use them effectively. Be proactive because they might think you expect them to know how to do this despite having only done it a few times in the past.
Step 8: Communicate often and clearly. Lead by example.
Having daily huddles and being clear on daily and weekly priorities (which will be constantly changing) is critical to Operations and Supply Chain. In a famous Supply Chain simulation, called “The Beer Game”, players try to move things through the supply chain (and operations) with no or limited communication. The result is disastrous order patterns (called the bull whip effect) where larger and larger (unnecessary) orders oscillate through the system, mostly due to poor communication. Simply being clear each day and week as things change will help everyone focus on the right things.
Mid-Term: Revenue Growth and Retention
The marketing, sales and customer success teams can proactively take measures to reduce risks associated with possible business disruption in the coming months. An immediate human reaction in business disruption is the tendency to stop all buying and horde cash. Having the flexibility to offer flexible pricing and terms may alleviate this fear. Proactive communication further assures both prospects and customers that you have a well-thought through plan, as well as further contingencies if the disruption proves to be a longer-term issue.
Creating Interest and Demand
A key to ensuring ongoing interest and demand creation is through outbound multi-channel marketing. Creation of a value story must answer two key questions: Why do anything and why now? Two key questions.
Pipeline Growth and Health
Creating a healthy pipeline necessary to drive continued sales and revenue depends directly on the team’s ability to create and communicate a value story that is linked to how your solution links to mitigation of key challenges and achieves primary business outcomes. Aligning with legal and product teams gives the sales team to prospect with confidence.
Forecast Management and Predictability
Having a clear and accurate sales forecast gives Finance and other downstream business functions insights regarding two key KPIs: cash flow, resource requirements and allocation and current and future revenue. Ensuring increased confidence in the forecast may be accomplished with buyer alignment though measuring verifiable outcomes during the selling process.
Customer Satisfaction and Retention
Maintaining a sense of calm and assurance that your team has the tools, processes and means of collaboration backed by stringently managed security and SLAs ensuring 100% uptime while working remotely gives customers a high level of confidence in the fact their business won’t be interrupted and cause damage to their customer and supplier relationships.
Next: A discussion of long-terms steps to take in response to business disruption. Operations, Product and Strategy Executive Elena Carroll will discuss strategic shifts and building data businesses within your current operations.